DUBLIN, Ireland-The emerald tiger is roaring.

Low inflation, a booming economy and a huge number of tourists are the outward signs of a spectacular turnaround in Ireland's fortunes.

Ten years after the International Financial Services Centre was established in Dublin's former derelict dockyard area, the IFSC has been a resounding success. Although recently the meteoric rise in other financial services has eclipsed the insurance sector's performance, captive growth continues.

Sixteen captive insurers and reinsurers were formed in 1996, but following the first-ever review of active companies, Dublin recorded a net gain of seven captives. According to the Industrial Development Agency of Ireland, a government department that promotes the IFSC, Dublin had 134 captives in 1996. Because the IDA did not review operational captives previously, past years' figures may have been inflated by including inactive captives.

Thirty captives were licensed in 1994 to beat a deadline set by the European Commission to take advantage of the 10% corporation tax rate it authorized for overseas companies setting up operations within the IFSC. Some of these never started operating, partly because of reduced premiums in the traditional insurance and reinsurance market, said David Smith, business development executive at the IDA. Even though they remain authorized, the IDA has decided to stop counting them.

Dublin's captive managers generally are pleased with 1996 growth, amid low insurance and reinsurance rates.

"Educated risk managers realized that insurance is a cyclical market," said Michael Trainor, managing director of Willis Corroon Management (Dublin) Ltd. Although pricing in the reinsurance market is squeezing the captive market, captives can help smooth out the cycle, he said.

Eamon O'Brien, managing director of Alexander Insurance Managers (Dublin) Ltd. and chairman of the Dublin International Insurance & Management Assn., said the worldwide depression of insurance rates has helped slow captive growth.

While "there are various niches Dublin is not strong in, such as association captives," captive managers are looking to establish other types of captive structures, Mr. O'Brien said.

DIMA has created a document on the domicile's future that it is discussing with the regulators, and the subject of rent-a-captives, which currently are not permitted in Dublin, has resurfaced.

Paul Sinnott, managing director of Mutual Coyle Hamilton Managers Ltd., has championed the rent-a-captive cause for some time, and more detailed proposals are being drawn up for submission to the authorities.

Mr. Sinnott said he thinks the time is right for regulators to relax their views on certain types of operations, such as rent-a-captives. Dublin "should be able to offer all options" to compete with domiciles such as the Isle of Man, he said.

But Patrick Kelly, assistant principal of the insurance section at the Department of Enterprise and Employment, said rent-a-captives are somewhat more complex and harder to regulate than regular captives.

Nevertheless, captive managers are interested in the principle. "Most people in the captive market support the rent-a-captive concept," said Aidan Pyke, senior account executive at SINSER (Ireland) Ltd.

And a number of midsize European companies would like to explore captives but cannot justify the expense of setting up their own, noted Michael Matthews, managing director of AIG Insurance Management Services Ltd.

It would make sense for these companies to enter a rent-a-captive operation to get used to retaining risk, he said, and eventually they could use the rent-a-captive fund to capitalize a stand-alone captive.

Mr. Matthews predicted that Dublin's regulators eventually will support the concept of rent-a-captives. "As Dublin continues to grow and to be as successful as it is, the pressure will ease off from people like the IDA, and they will look at new structures," he said.

One of Dublin's biggest selling points is the ability to write direct and reinsurance business across the European Union, under the third insurance directive. This continues to attract multinationals, particularly from the United States. Of the 16 captives set up in 1996, half have U.S. parents.

"There is still a lot of interest from the U.S.," said Willis Corroon's Mr. Trainor. "They are learning about Dublin and identifying that the European Union is going to be a real thing with the introduction of Economic and Monetary Union. Ireland is one of the major participants within EMU," he added.

"Major multinationals, particularly from the U.S., are interested in one-stop shopping," said Alexander's Mr. O'Brien. In response, more captive managers are adding treasury services to handle captives' financial needs.

Meanwhile, managers are hopeful the Irish government will address the issue of the 10% tax rate for captives, which is set to expire in 2005

Most observers think a new rate for captives will be set, to take effect after the deadline, of between the 10% rate for captives and the 37% that domestic businesses now pay.

The Irish minister of finance has hinted the tax issue will be addressed this year, though few captive managers expect a resolution soon.

"The tax regime is quite important, and Dublin will have to put itself into a position where it is not an issue by 2005," said Garry Cullen, director at Sedgwick Management Services (Ireland) Ltd.

Other managers place less emphasis on the tax. "Our clients are not concerned at all," said AIG's Mr. Matthews. "They see the tax as a plus rather than the motivating force of being in Dublin."

"The primary reason to set up in Dublin is to direct-write, to save fronting fees and eliminate or reduce the number of brokers involved-cutting out a layer of additional cost," said Alexander's Mr. O'Brien.

Other attractions of Dublin include low costs, a well-educated and English-speaking workforce and expertise in the domicile, said SINSER's Mr. Pyke. "The whole infrastructure from the regulators down is geared and focused to accommodate all financial services," he said.

If there is a cloud on the horizon, it is the possibility that new European regulations, likely to be introduced within the next two years, will raise solvency margins and minimum guaranty funds for European-based insurers.

As one of the European regulators involved in the changes, the DEE's Mr. Kelly takes a pragmatic view. "If they set the threshold too high at entry level, it could be a barrier," he said. The current levels, set in 1973, are outdated, he added.